Jeff Judy

Jeff's Thoughts - September 3, 2008

Ostrich, Skeptic, Copycat, or Realist?

Some of you reading this have been in the business long enough to remember when the only places people went for depository accounts and credit were banks, credit unions, and savings and loans. While banks and credit unions still handle the lion's share of that business today, there are many more nontraditional sources of those services available now. And these non-banking institutions, these "un-banks", are going to be more and more visible in our future.

Naturally, the Internet and online access play a major role. There are banks that offer strictly online accounts to customers now, with no physical office to go to. On the other hand, some "un-banks" that are already familiar to your customers are pursuing your customers. You can do basic banking with major insurance companies now, for instance, and even the Wal-Mart name is more and more often heard linked to financial services. These institutions are already well-known to your customers, and have the resources to provide basic services at great convenience.

Even newer, and less traditional, are outfits like Prosper. Prosper is a "peer-to-peer" service, in which borrowers make requests by the amount the want and the rate they are willing to pay, and ordinary individuals set the amount and rate are willing to lend. Prosper is basically a matching service that pulls together the needed loan from the bids of many individuals, so that some creditors in this system could be lending $100 or less. Some see this approach as one that could have strong appeal to small businesses, and Prosper is not the only lending service out there that could change the rules of the credit game.

But how do bankers react when I bring up these "un-banks"? They tend to follow one of these models:

The Ostrich: "Ignore all this fuss about these crazy ideas, they have nothing to do with us."

The Skeptic: "Oh, sure, a few customers might try this, but they'll never be able to turn these services into something that will affect mainstream banking."

The Copycat: "Quick, we can't let them steal a single customer. Let's form a task force today that will put together a program we can offer our customers that will look just like these un-banks.

The Realist: "We need to pay attention to what they are doing and how it affects customer expectations. If we don't know what they are doing, we can't decide if, and how, we need to respond."

You can guess which model I recommend. Strange to say, the "realists" are also the "visionaries" of this tale. They have the imagination to recognize that the entry of new players into traditional banking services could mean much more than just additional competition.

They know that the real issue is not losing a customer here and there. They are watching for a seismic shift in perceptions of, and standards for, financial relationships. Whether or not you compete directly with these services today, you will be competing in an environment they are helping to shape for tomorrow, and only an informed, patient, and thoughtful response will help you thrive in that new environment.